CARTAGENA, Colombia—As the years continue to pile up since Colombia shed its stigma as the crime- and drug-ridden capital of South America, different pockets of hotel development across the country are beginning to emerge.

Cartagena—a coastal destination on the northwestern-most tip of South America—is Colombia’s fifth largest city but its fastest growing. The “walled city”—the inner-most part of downtown that is surrounded by a stone wall—has become a popular destination for both business and leisure travel. Rich with historical culture, Cartagena always has been a popular spot for Colombians to celebrate romance, culture and art.

Today, however, international visitors are beginning to take notice as well.

“Cartagena is a really spectacular city,” said Michael Register, VP of business development for Trust Hospitality Worldwide, which opened the Casa San Agustin, a 31-room boutique hotel within the walled city in October. “There are three places that come to my mind that have the old cities that the Spanish built in the 1500s and 1600s: old San Juan (Puerto Rico), Casco Viejo in Panama City (Panama), and then Cartagena. Cartagena is head and shoulders above the rest. It’s a visually stunning old colonial city.”

A 2.5-hour flight from Miami, Cartagena is beginning to see an influx of American travelers. Most visitors are still domestic travelers, coming from within Colombia, particularly as the middle class grows, but the centric geography also draws wealthy Mexicans and Brazilians.

“The growth in arrivals in recent years has been remarkable,” said Andrea del Pilar Lopez, marketing and communications director for Proexport Colombia. “More specifically, in the last three years the average growth has been 8%. From January 2012 to August 2012, the recorded growth was 9.7%.”

Bogota alone provides enough demand for Cartagena’s convention market. The local convention center holds 90 events a year, with anywhere from 500 attendees up to 4,000 or 5,000, said Patrick Goddard, president and COO of Trust Hospitality.

“It’s brutally hot in the summer there. Like Miami Beach, Cartagena is an all-year destination,” Register said. “August is brutal, July is brutal. The real high season is December through Semana Santa (Easter).”

Hoteliers respond
Like any city around the world, a growing economy and an influx of international travelers—both leisure and business—will pique the interest of hotel developers. Cartagena is no exception.

Hilton Hotels & Resorts, Holiday Inn Hotels & Resorts, Hotel Dann, Hotel Caribe and Sonesta are among the most well-known brands already present in Cartagena—all outside of the walled city. Inside the walled city there are dozens of boutique properties, the largest of which has 50 rooms.

“Outside of the walled city there is lots of development going up and down the coast,” Register said. “There is a peninsula that looks like Miami Beach and some of the big hotels are there. Going toward the city they are developing like crazy—Hilton, Hyatt, they are all building right now.”

Frank Orenstein, chairman of Hospitality Investors Group, LLC, is developing a Hyatt Regency in Cartagena with a handful of other equity partners, including Hyatt. He said he sees Cartagena as the forefront of where the hospitality business is going in Latin America.

Orenstein said he was approached about two years ago by a Colombian-based investment banker, Ospinas & Co., LLC, which didn’t have much experience in hospitality but saw Cartagena as a future market opportunity.

“Unemployment had been sucked up, and there was an absence of managed hotels,” Orenstein said. “I liked the site, and we had a good partner that could build it. Construction costs were beneficial.”

Orenstein said staffing a hotel in Colombia is easier because “it’s the kind of country where hospitality is a profession, not just another job.”

The Hyatt Regency is under construction and, when completed in 2015, will feature 256 rooms with 68 residences on the uppermost floors. It’s slightly south of the walled city and overlooks the ocean.

“We decided that this hotel, to be successful, needed to capitalize on international reach,” Orenstein said. “We wouldn’t have done that deal without a brand.”

Oversupply concerns
While Cartagena is still viewed by many as an emerging market, some sources already have expressed concern about oversupply.

“I would be a little nervous about Cartagena. Like Panama, Cartagena is also under a lot of pressure now because there is so much supply coming on there. Everyone is building a hotel in Cartagena,” Register said. “I would not want to be building a 4-star, 250-room hotel on the beach there. I’m just worried because the rest of Colombia is soft because of too much supply, and they’re going crazy in Cartagena right now, so it’s a little troublesome.”

While occupancy in Cartagena in recent years has been relatively stable, the first few months of 2012 saw occupancy drop 7.2% year over year, according to Cotelco, which compiles performance data.

Occupancy in Cartagena in the first quarter of 2012 was 60.5% compared to 65.2% in the first quarter of 2011. Average room rate in the first quarter of 2012 was $204 compared with $194 in the first quarter of 2011.

But Orenstein said there is no concern for well-sponsored projects.

“If I were a guy that didn’t have a brand, I’ll tell you I’d be worried,” he said. “But there’s a market there. There’s room for five hotels, but it’s guys six through 20 who should be worried.”

Goddard said that since the beach outside the walled city is “not really set up for a vacation,” hotels there eventually will find themselves catering more to business travelers.

“People will end up staying in them thinking they’re leisure but will realize all the magic of Cartagena is within the walled city,” he said.

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